Shock to power supply system as regulator calls for price cuts

After years of waving through electricity price rises with little push-back, the government is finally flexing its muscles and rejecting rises sought by some power companies, instead forcing prices to be cut.

In its first reviews since receiving additional powers, the Australian Energy Regulator - an arm of the competition watchdog, the ACCC - has rejected rises sought by two of the high-voltage electricity transmission companies, TransGrid in NSW and Transend in Tasmania.

Instead, the companies will be forced to cut prices.

TransGrid applied to raise prices 7.4 per cent. But the regulator said it will have to cut prices by 2.3 per cent. Transend proposed to cut prices by 1.7 per cent, but has been told to cut prices 6.4 per cent.

The tougher approach follows changes to legislation finally allowing the AER to push back hard against spending submissions. Previously, the regulator could only quibble with spending plans. But following a sustained public outcry, the regulator was given additional powers to scrutinise spending plans.

As electricity distributors are monopolies, their spending plans are regulated by the government, in a bid to ensure they do not abuse their position. But after sustained declines in consumption following price rises and the closure of large industrial consumers, this has left remaining users to foot the bill to keep the network operating, pushing up prices.

In its original submission, Transgrid pointed to declining demand, although apart from opting to move some equipment as demand patterns change over time, it had no meaningful response. Even so, it still sought approval to raise prices rather than trimming its sails.

As a result, large energy users have been lobbying hard to try to limit the proposed price changes and toughen the regulator's approach. The proposals of TransGrid and Transend are for just a 12-month period, pending a fuller multi-year plan.

The power distributor component of the typical electricity bill is less than 10 per cent.